Article 43
Bad Moon Rising
Sunday, August 01, 2010
Bad Moon Rising Part 40 - China Calls Our Bluff
The US is Insolvent and Faces Bankruptcy as a Pure Debtor Nation but [U.S.] Rating Agencies Still Give it High Rankings
By George Washington
Washington’s Blog
July 23. 2010
America’s biggest creditor - China - has called our bluff.
As the Financial Times NOTES, the head of China’s biggest credit rating agency has said America is insolvent and that U.S. credit ratings are a joke:
The head of China’s largest credit rating agency has slammed his WESTERN COUNTERPARTS for causing the global financial crisis and said that as the world’s largest creditor nation China should have a bigger say in how governments and their debt are rated.
“The western rating agencies are politicised and highly ideological and they do not adhere to objective standards,” Guan Jianzhong, chairman of Dagong Global Credit Rating, told the Financial Times in an interview.
***
He specifically criticised the practice of rating shopping by companies who offer their business to the agency that provides the most favourable rating.
In the aftermath of the financial crisis rating shopping has been one of the key complaints from western regulators , who have heavily criticised the big three agencies for handing top ratings to mortgage-linked securities that turned toxic when the US housing market collapsed in 2007.
The financial crisis was caused because rating agencies didn’t properly disclose risk and this brought the entire US financial system to the verge of collapse, causing huge damage to the US and its strategic interests, Mr Guan said.
Recently, the rating agencies have been criticised for being too slow to downgrade some of the heavily indebted peripheral eurozone economies, most notably Spain, which still holds triple A ratings from Moody’s.
There is also a view among many investors that the agencies would shy away from withdrawing triple A ratings to countries such as the US and UK because of the political pressure that would bear down on them in the event of such actions.
Last week, privately-owned Dagong published its own sovereign credit ranking in what it said was a first for a non-western credit rating agency.
The results were very different from those published by Moodys, Standard & Poor’s and Fitch, with China ranking higher than the United States, Britain, Japan, France and most other major economies, reflecting Dagongs belief that China is more politically and economically stable than all of these countries.
Mr Guan said his company’s methodology has been developed over the last five years and reflects a more objective assessment of a governments fiscal position, ability to govern, economic power, foreign reserves, debt burden and ability to create future wealth.
“The US is insolvent and faces bankruptcy as a pure debtor nation but the rating agencies still give it high rankings”, Mr Guan said.
***
A wildly enthusiastic editorial published by Xinhua , China’s official state newswire, lauded Dagongs report as a significant step toward breaking the monopoly of western rating agencies of which it said China has long been a victim.
“Compared with the US conquest of the world by means of force, Moody’s has controlled the world through its dominance in credit ratings,” the editorial said…
China is right. U.S. credit ratings have been less than worthless. And - in the real world - America should have been downgraded to junk. See THIS, THIS, THIS, THIS, THIS, THIS, THIS, THIS and THIS.
China is not shy about reminding the U.S. who’s got the biggest pockets. As the Financial Times quotes Mr. Guan:
China is the biggest creditor nation in the world and with the rise and national rejuvenation of China we should have our say in how the credit risks of states are judged.
Might Makes Right Economic Collapse
Indeed, Guan is even dissing America’s military prowess:
“Actually, the huge military expenditure of the US is not created by themselves but comes from borrowed money, which is not sustainable.
As I’ve repeatedly SHOWN, borrowing money to fund our huge military expenditures are - paradoxically - weakening our national security:
As I’ve previously POINTED OUT, America’s military-industrial complex is ruining our economy.
And U.S. military and intelligence leaders say that the economic crisis is the biggest national security threat to the United States. See THIS, THIS and THIS.
[I]t is ironic that America’s huge military spending is what made us an empire ... but our huge military is what is bankrupting us ... thus destroying our status as an empire ...
Indeed, as I POINTED OUT in 2008:
So why hasn’t America’s credit rating been downgraded?
Well, a REPORT by Moody’s in September states:
“In superficially similar circumstances, the ratings of Japan and some Scandinavian countries were downgraded in the 1990s.
***
For reasons that take their roots into the large size and wealth of the economy and, ultimately, the US military power, the US government faces very little liquidity risk - it’s debt remains a safe heaven. There is a large market for even a significant increase in debt issuance.”
So Japan and Scandinavia have wimpy militaries, so they got downgraded, but the U.S. has lots of bombs, so we don’t? In any event, American cannot remain a hyperpower if it is broke.
The fact that America spends more than the rest of the world combined on our military means that we can keep an artificially high credit rating. But ironically, all the money we’re spending on our military means that we become less and less credit-worthy ... and that we’ll no longer be able to fund our military.
The Scary Part
I chatted with the head of a small investment brokerage about the China credit rating story.
Because he gives his clients very bullish, status quo advice, I assumed that he would say that China was wrong.
To my surprise, he simply responded:
They’re right. What’s scary is that China knows it.
In other words, everyone who pays any attention knows that we’re broke. What’s scary is that our biggest creditor knows it.
Tricks Up Their Sleeves?
China has been THREATENING for many months to replace the dollar as the world’s reserve currency (and see THIS.) And China, Russia and other countries have made a lot of noises about replacing the dollar with the SDR. See this and this.
Gordon T. Long ARGUES that the much talked about GOLD SWAPS are part and parcel of the plan to replace the dollar with the SDR. Time will tell if he’s right.
China, of course, is not without its own problems. See THIS and THIS.
In related news, Germany’s biggest companies are starting to shun Wall Street as too risky.
Bad Moon Rising
Part 1 - Part 2 - Part 3 - Part 4 - Part 5
Part 6 - Part 7 - Part 8 - Part 9 - Part 10
Part 11 - Part 12 - Part 13 - Part 14 - Part 15
Part 16 - Part 17 - Part 18 - Part 19 - Part 20
Part 21 - Part 22 - Part 23 - Part 24 - Part 25
Part 26 - Part 27 - Part 28 - Part 29 - Part 30
Part 31 - Part 32 - Part 33 - Part 34 - Part 35
Part 36 - Part 37 - Part 38 - Part 39 - Part 40
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Sunday, June 27, 2010
Bad Moon Rising Part 39 - The Doomed US Homeowner
Between 2.5 wars, a few major natural disasters, an economic mess, a heaping helping of social programs and agriculture subsidies, and the US’s loss of the world tech leadership position....we just couldn’t seem to find the time.
- After Discovery’s Launch, What’s Left For the Shuttle?, Slashdot
Every now and then I check out the estimated value of my house on websites like ZILLOW and AOL REAL ESTATE, and watch it go down, down, down.
According to one figure, I’M ALREADY a member of the NEGATIVE HOMEOWNER EQUITY club, and ONE CATASTROPHIC EVENT away from joining the WALK AWAY FROM YOUR MORTGAGE, and TENT CITY clubs.
More than half the homes for sale in my middle-class neighborhood are foreclosures.
Just wait until the SHADOW INVENTORY is let loose on the market.
Homeowners are DOOMED.
And IF THE GOVERNMENT keeps DOING NOTHING to slow down LAYOFFS and OUTSOURCING, and nothing to stop the continued EXODUS of our MANUFACTURING BASE to places like VIETNAM, Obama’s plan to HELP UNEMPLOYED HOMEOWNERS is little more than a sliver of bread thrown at a STARVING nation.
The middle-class is DOOMED.
Our great nation is DOOMED.
While THE SHIFT of AMERICA’S SLIDE to CHINA’S RISE as the dominant word power continues.
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1.2 Million Households Lost To Recession
As friends and families double up, “overcrowding” is up fivefold
By Jown Schoen
MSNBC
April 8, 2010
Since Richard Brown lost his job to the recession and his Boston home to foreclosure a year ago, he’s been working short-term consulting assignments until he gets back on his feet. In the meantime, he’s been couch surfing.
“I’ve lived with my brother, my cousin, my friend and my dad,” he said. “The IRS keeps calling me, asking me: What’s your address? And I say, “What week is this?”
Armed with college degree and an MBA, Brown, 49, built a solid resume over three decades as a corporate controller for several Fortune 500 companies, including W.R. Grace and Wal-Mart, before launching his own global consulting business with clients in Europe and Mexico. But when the Panic of 2008 sent clients scrambling, he was unable to keep up with a jump in his mortgage payments and lost his home to foreclosure.
Brown represents one of the more than 1.2 million households lost to the recession, according to a report issued this week by the Mortgage Bankers Association that looked at data between 2005 and 2008. That number doesnt include information from 2009, when job losses and foreclosures continued to rise.
So it’s likely that the full impact of the 8.4 million jobs lost and nearly three million homes foreclosed on since the recession began has taken an even bigger toll on the number of American households.
“Given the depth of the downturn in 2009, and the ongoing weakness in the job market through the beginning of this year, this study gives no reason to expect that household formation has picked up at all,” said Gary Painter, a professor at the University of Southern California who conducted the study.
The study also shed some light on what happens to the people in those “lost” households. Its widely assumed that many who lose a home to foreclosure become renters. But since the recession began, there has been a five-fold increase in overcrowding of remaining households - defined as more than one person per room, according to the study.
That doubling-up is happening as families who lose their homes move in with friends or family. In other cases, younger people have delayed moving out on their own, instead staying with their parents until the economy improves. Others who fail to find work after graduating from college move back home.
Falling homeownership levels
The decline in households is weighing on both the home buying and rental markets. Since the number of home foreclosures began surging in 2007, the national homeownership rate has been steadily falling. But renters also have been forced to double up or move in with friends or family. Thats a major reason that the vacancy rate for U.S. apartments stood at 8 percent in the first quarter, the highest level since 1986, according to a report this week from Reis, a real estate research firm.
The future pace of household destruction or formation is uncertain. A lot depends on how quickly the job and housing markets recover. The outlook for both is mixed.
Though many economists expect the economy to add several hundred thousand new jobs a month as the recovery gains strength, it will likely take years to restore employment to its pre-recession levels. After the 2001 recession, it took four years of job growth to restore a 2 percent drop in employment. This time around employment levels have fallen by 6 percent.
Homeownership levels, meanwhile, continue to decline. New foreclosures filings are running about 300,000 a month, according to RealtyTrac. There are currently some 5 million homeowners that are 90 days or more past due on their mortgages, according to Fannie Mae chief economist Doug Duncan.
Though the pace of foreclosures has recently begun to taper off, there are indications they may pick up again as lenders redouble efforts to work out bad loans, and mortgage defaults continue to bring new foreclosures.
“Some of the foreclosure backlogs are working their way through the system at this point,” Duncan told CNBC.
Millions more homeowners who are current on their mortgages owe more than their home is worth. Though the government recently issued another round of guidelines to lenders urging them to reduce the principal owed on those loans, the process is mostly voluntary.
Rise in homelessness
So far, lenders have been slow to cut the size of a mortgage to make monthly payments more affordable. As a result, an increasing number of families are walking away from their homes in a process known in the industry as strategic default.
“That can become contagious, said Duncan,” as neighbors follow suit. “If they see someone else in their neighborhood that walks away, it increases the likelihood they will seriously consider not paying theirs, he said.”
It’s not a move to be taken lightly. The resulting damage to a borrowers credit history can hurt job prospects with a new employer or create a barrier to renting.
In some cases, the loss of a house to foreclosure is leaving families homeless, though there is little national data available on how many are affected. A RECENT STUDY by the Department of Housing and Urban Development found family homelessness on the rise since the recession began, with the biggest increases in suburban and rural areas.
Other groups, like the National Alliance to End Homelessness, report that a rising number of older adults are without a permanent place to live.
“The limited existing research tells a story of increasing homelessness among adults ages 50 and older, the group said in a recent report.”
The formation of new households isn’t expected to pick up again until at least 2012, according to the MBA study, even as the population continues to increase. Between 2005 and 2008, those 1.2 million households were lost even as the population grew by 3.4 million.
In the meantime, former homeowners like Brown are left scrambling for alternatives. He recently move into a rooming house where he continues to track down consulting work.
“I pay $600 for a third-floor room that gets hot in the summer,” he said. “It’s a blow. I dont belong here. I’m an educated person. Ive held executive positions. And here I am in a boarding house where Russian is a first language.”
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New Home Sales Plummet To Record Low
By Hibah Yousuf
CNN Money
June 23, 2010
New home sales plummeted to a record low in May, the first month following the expiration of the homebuyer tax credit. This snapped a two-month streak of gains.
New home sales declined 32.7% to a seasonally adjusted annual rate of 300,000 last month, down from an downwardly revised 446,000 in April, the Commerce Department reported Wednesday. Sales year-over-year fell 18.3%.
This is the slowest sales pace since the Commerce Department began tracking data in 1963. The prior record was set in September 1981, when new homes sold at an annual rate of 338,000.
“We expected a slowdown, but the extent of this decline was a surprise,” said Anika Khan, an economist at Wells Fargo. The figure was even worse than her relatively pessimistic forecast of an annual rate of 380,000 in May.
A consensus of economists surveyed by Briefing.com had expected May sales to slide to an annual rate of 430,000.
“Clearly, the lack of a tax credit had a lot to do with it, and it’s going to be a bit of a bumpy road ahead as we get a few more months of payback,” Khan said.
Home sales had surged in March and April as homebuyers scrambled to sign contracts ahead of the April 30 deadline for the tax credit. First-time homebuyers qualified for a tax credit up to $8,000, while repeat buyers could get as much as a $6,500 break.
Homebuyers have until June 30 to close deals, but the Senate may vote to push that deadline back to Sept. 30.
Khan expects home sales to remain depressed through the third quarter as home construction continues to contract and lending standards remain tight. But, she said, sales should pick up slightly in the fourth quarter.
Although, she added, we are still years away from a normal level of new home sales—an annual rate between 800,000 and 900,000.
“A full housing recovery is contingent on employment,” Khan said. “When we see the unemployment rate abate, and some growth in salaries and incomes, we’ll get some sustainable momentum in the housing market.”
A real estate industry report released earlier this week showed that existing home sales, based closed sales rather than signed contracts, slipped slightly last month but remained elevated.
0:00 /5:20Double-dip fears haunt housing
Price and inventory: The government report showed that the median price of new homes sold in May was $200,900, down less than 1% from April but a 9.6% drop from May 2009.
An estimated 213,000 new homes were for sale at the end of May, the lowest inventory level in more than 40 years.
Still, at the current sales pace, the government expects it will take 8.5 months to sell through that inventory, up from 5.8 months in April. Six months of inventory is considered normal market conditions.
Sales by region: Sales fell the most in the West, where they decreased by more than 50%; the Northwest saw sales declined by about a third. Sales in the South and Midwest declined by about 25%.
Bad Moon Rising
Part 1 - Part 2 - Part 3 - Part 4 - Part 5
Part 6 - Part 7 - Part 8 - Part 9 - Part 10
Part 11 - Part 12 - Part 13 - Part 14 - Part 15
Part 16 - Part 17 - Part 18 - Part 19 - Part 20
Part 21 - Part 22 - Part 23 - Part 24 - Part 25
Part 26 - Part 27 - Part 28 - Part 29 - Part 30
Part 31 - Part 32 - Part 33 - Part 34 - Part 35
Part 36 - Part 37 - Part 38 - Part 39 - Part 40
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Sunday, February 07, 2010
Bad Moon Rising Part 38 - The Second Wave
Not everyone who says to me, Lord, Lord, will enter the kingdom of heaven, but only one who does the will of my Father in heaven. On that day many will say to me, Lord, Lord, did we not prophesy in your name, and cast out demons in your name, and do many deeds of power in your name? Then I will declare to them, I never knew you; go away from me, you evildoers.
- Matthew 7:21-23
The Crisis is Not Over
By Paul Craig Roberts
Counterpunch
February 3, 2010
Is the financial crisis over? Is the recovery for real and, if not, what are Americans prospects? The short answer is that the financial crisis is not over, the recovery is not real, and the U.S. faces a far worse crisis than the financial one. Here is the situation as I understand it:
The global crisis is understood as a banking crisis brought on by mindless deregulation of the U.S. financial arena. Investment banks leveraged assets to highly irresponsible levels, issued questionable financial instruments with fraudulent investment grade ratings, and issued the instruments through direct sales to customers rather than through markets.
The crisis was initiated when the U.S. allowed Lehman Brothers to fail, thus threatening money market funds everywhere. The crisis was used by the investment banks, which controlled U.S. economic policy, to secure massive subsidies to their profits from a taxpayer bailout and from the Federal Reserve. How much of the crisis was real and how much was hype is not known at this time.
As most of the derivative instruments had never been priced in the market, and as their exact composition between good and bad loans was unknown (the instruments are based on packages of securitized loans), the mark-to-market rule drove the values very low, thus threatening the solvency of many financial institutions. Also, the rule prohibiting continuous shorting had been removed, making it possible for hedge funds and speculators to destroy the market capitalization of targeted firms by driving down their share prices.
The obvious solution was to suspend the mark-to-market rule until some better idea of the values of the derivative instruments could be established and to prevent the abuse of shorting that was destroying market capitalization. Instead, the Goldman Sachs people in charge of the U.S. Treasury and, perhaps, the Federal Reserve as well, used the crisis to secure subsidies for the banks from U.S. taxpayers and from the Federal Reserve. It looks like a manipulated crisis as well as a real one due to greed unleashed by financial deregulation.
The crisis will not be over until financial regulation is restored, but Wall Street has been able to block re-regulation. Moreover, the response to the crisis has planted seeds for new crises. Government budget deficits have exploded. In the U.S. the fiscal year 2009 federal budget deficit was $1.4 trillion, three times higher than the 2008 deficit. President Obamas budget deficits for 2010 and 2011, according to the latest report, will total $2.9 trillion, and this estimate is based on the assumption that the Great Recession is over. Where is the U.S. Treasury to borrow $4.3 trillion in three years?
This sum greatly exceeds the combined trade surpluses of AmericaҒs trading partners, the recycling of which has financed past U.S. budget deficits, and perhaps exceeds total world savings.
It is unclear how the 2009 budget deficit was financed. A likely source was the bank reserves created for financial institutions by the Federal Reserve when it purchased their toxic financial instruments. These reserves were then used to purchase the new Treasury debt. In other words, the budget deficit was financed by deterioration in the balance sheet of the Federal Reserve. How long can such an exchange of assets continue before the Federal Reserve has to finance the governments deficit by creating new money?
Similar deficits and financing problems have affected the EU, particularly its financially weaker members. To conclude: the initial crisis has planted seeds for two new crises: rising government debt and inflation.
A third crisis is also in place. This crisis will occur when confidence is lost in the U.S. dollar as world RESERVE CURRENCY. This crisis will disrupt the international payments mechanism. It will be especially difficult for the U.S. as the country will lose the ability to pay for its imports with its own currency. U.S. living standards will decline as the ability to import declines.
The financial crisis is essentially a U.S. crisis, spread abroad by the sale of toxic financial instruments. The rest of the world got into trouble by trusting Wall Street. The real American crisis is much worse than the financial crisis. THE REAL AMERICAN CRISIS is the offshoring of U.S. manufacturing, industrial, and professional service jobs such as software engineering and information technology.
Jobs offshoring was initiated by Wall Street pressures on corporations for higher earnings and by performance-related bonuses becoming the main form of managerial compensation. CORPORATE EXECUTIVES increased profits and obtained bonuses by substituting cheaper foreign labor for U.S. labor in the production of goods and services marketed in the U.S.
Jobs offshoring is destroying the ladders of upward mobility that made the U.S. an opportunity society and ERODING VALUE OF A UNIVERSITY EDUCATION. For the first decade of the 21st century, the U.S. economy has been able to create net new jobs only in domestic nontradable services, such as waitresses, bartenders, sales, health and social assistance and, prior to the real estate collapse, construction. These jobs are lower paid than the jobs were that have been offshored, and these jobs do not produce goods and services for export.
Jobs offshoring has increased the U.S. trade deficit, putting more pressure on the dollar’s role as reserve currency. When offshored goods and services return to the U.S., they add to imports, thus worsening the trade imbalance.
The policy of jobs offshoring is insane. It is shifting U.S. GDP growth to the offshored locations, such as China, thus halting growth in U.S. consumer incomes. For the past decade, U.S. households substituted an increase in indebtedness for the lack of growth in income in order to continue increasing their consumption. With their home equity refinanced and spent, real estate values down, and credit card debt at unsustainable levels, it is no longer possible for the U.S. economy to base its growth on a rise in consumer debt. This fact is a brake on U.S. economic recovery.
Stimulus packages cannot substitute for the growth in real income. As so many high value-added, high productivity U.S. jobs have been offshored, there is no way to achieve real growth in U.S. personal incomes. Stimulus spending simply adds to government debt and pressure on the dollar, and sows seeds for high inflation.
The U.S. dollar survives as reserve currency because there is no apparent substitute. The euro has its own problems. Moreover, the euro is the currency of a non-existent political entity. National sovereignty continues despite the existence of a common currency on the continent (but not in Great Britain). If the dollar is abandoned, then the result is likely to be bilateral settlements in countries own currencies, as Brazil and China now are doing. Alternatively, John Maynard KeynesҒ bancor scheme could be implemented, as it does not require a reserve currency country. Keynes plan is designed to maintain a country’s trade balance. Only a reserve currency country can get its trade and budget deficits so out of balance as the U.S. has done. The prospect of U.S. default and/or inflation and decline in the dollars exchange value is a threat to the reserve system.
The threats to the U.S. economy are extreme. Yet, neither the Obama administration, the Republican opposition, economists, Wall Street, nor the media show any awareness. Instead, the public is provided with spin about recovery and with higher spending on pointless wars that are hastening America’s economic and financial ruin.
Paul Craig Roberts was Assistant Secretary of the U.S. Treasury in the Reagan administration. His latest book, How The Economy Was Lost, has just been published by CounterPunch/AK Press. He can be reached at: PaulCraigRoberts at yahoo.com
Bad Moon Rising
Part 1 - Part 2 - Part 3 - Part 4 - Part 5
Part 6 - Part 7 - Part 8 - Part 9 - Part 10
Part 11 - Part 12 - Part 13 - Part 14 - Part 15
Part 16 - Part 17 - Part 18 - Part 19 - Part 20
Part 21 - Part 22 - Part 23 - Part 24 - Part 25
Part 26 - Part 27 - Part 28 - Part 29 - Part 30
Part 31 - Part 32 - Part 33 - Part 34 - Part 35
Part 36 - Part 37 - Part 38 - Part 39
Section Bad Moon Rising • Section Dying America • Section Next Recession, Next Depression •
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Saturday, June 13, 2009
Bad Moon Rising Part 37 - North Korea
North Korea to Weaponize Its Plutonium
By Maretin Fackler
NY Times
June 13, 2009
North Korea responded to new UNITED NATIONS SANCTIONS on Saturday by defiantly vowing to press forward with production of nuclear weapons and take resolute military actions against efforts to isolate it.
In a statement on the Norths official Korean Central News Agency, an unnamed spokesman for the North Korean Foreign Ministry was quoted as saying that his nation will continue its nuclear program to defend itself against what he called a HOSTILE United States POLICY. He was quoted as saying his nation will ғweaponize its existing plutonium stockpiles and begin a new program to enrich uranium, another material that can be used to make atomic warheads.
The statement was released hours after the Security Council voted to punish the North for its May 25 nuclear test and ballistic missile tests with tough sanctions including an arms embargo and high-seas searches of North Korean vessels.
“Well take firm military action if the United States and its allies try to isolate us,” the spokesman said, according to KCNA.
According to KCNA, the spokesman also said that his nation “will weaponize all plutonium, and we’ve reprocessed more than one-third of our spent nuclear fuel rods.”
The statement was an apparent reference to spent fuel rods from the North’s Soviet-era Yongbyon nuclear complex. Since the early 1990s, United Nations inspectors have tried to keep tabs on the rods, which can be reprocessed into weapons-grade plutonium.
The United States has also warned in the past that the North may be trying to turn its abundant supplies of natural uranium into material for weapons.
North Korea has grown increasingly isolated as it has pressed forward with a nuclear program that many analysts now believe is aimed at producing an independent nuclear deterrent. The country also tested a long-range rocket in April and may soon launch another one in what many analysts call an effort to produce a delivery system capable of reaching the mainland United States, which it views as its biggest military threat.
“It has become an absolutely impossible option for the D.P.R.K. to even think about giving up its nuclear weapons,” Saturday’s STATEMENT said, using the initials of the North’s official name, the Democratic Peoples Republic of Korea.
Bad Moon Rising
Part 1 - Part 2 - Part 3 - Part 4 - Part 5
Part 6 - Part 7 - Part 8 - Part 9 - Part 10
Part 11 - Part 12 - Part 13 - Part 14 - Part 15
Part 16 - Part 17 - Part 18 - Part 19 - Part 20
Part 21 - Part 22 - Part 23 - Part 24 - Part 25
Part 26 - Part 27 - Part 28 - Part 29 - Part 30
Part 31 - Part 32 - Part 33 - Part 34 - Part 35
Part 36 - Part 37 - Part 38 - Part 39
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Wednesday, April 08, 2009
Bad Moon Rising Part 36 - Infrastructure Cyber-Threat
Electricity Grid in U.S. Penetrated By Spies
By Sioban Gorman
Wall Street Journal
April 7, 2009
Cyberspies have penetrated the U.S. electrical grid and left behind software programs that could be used to disrupt the system, according to current and former national-security officials.
The spies came from CHINA, Russia and OTHER COUNTRIES, these officials said, and were believed to be ON A MISSION to navigate the U.S. electrical system and its controls. The intruders haven’t sought to damage the power grid or other key infrastructure, but officials warned THEY COULD try during a crisis or war.
“The Chinese have attempted to map our infrastructure, such as the electrical grid,” said a senior intelligence official. “So have the Russians.”
The espionage appeared pervasive across the U.S. and doesn’t target a particular company or region, said a former Department of Homeland Security official. “There are intrusions, and they are growing,” the former official said, referring to electrical systems. “There were a lot last year.”
Many of the intrusions were detected not by the companies in charge of the infrastructure but by U.S. intelligence agencies, officials said. Intelligence officials WORRY ABOUT cyber attackers TAKING CONTROL of electrical facilities, a nuclear power plant or financial networks via the Internet.
Authorities investigating the intrusions have found software tools left behind that could be used to destroy infrastructure components, the senior intelligence official said. He added, “If we go to war with them, they will try to turn them on.”
Officials said water, sewage and other infrastructure systems also were at risk.
“Over the past several years, we have seen cyberattacks against critical infrastructures abroad, and many of our own infrastructures are as vulnerable as their foreign counterparts,” Director of National Intelligence Dennis Blair recently told lawmakers. “A number of nations, including Russia and China, can disrupt elements of the U.S. information infrastructure.”
Officials cautioned that the motivation of the cyberspies wasn’t well understood, and they don’t see an immediate danger. China, for example, has little incentive to disrupt the U.S. economy because it relies on American consumers and holds U.S. government debt.
But protecting the electrical grid and other infrastructure is a key part of the Obama administration’s cybersecurity review, which is to be completed next week. Under the Bush administration, Congress approved $17 billion in secret funds to protect government networks, according to people familiar with the budget. The Obama administration is weighing whether to expand the program to address vulnerabilities in private computer networks, which would cost billions of dollars more. A senior Pentagon official said Tuesday the Pentagon has spent $100 million in the past six months repairing cyber damage.
Overseas examples show the potential havoc. In 2000, a disgruntled employee rigged a computerized control system at a water-treatment plant in Australia, releasing more than 200,000 gallons of sewage into parks, rivers and the grounds of a Hyatt hotel.
Last year, a senior Central Intelligence Agency official, Tom Donahue, told a meeting of utility company representatives in New Orleans that a cyberattack had taken out power equipment in multiple regions outside the U.S. The outage was followed with extortion demands, he said.
The U.S. electrical grid comprises three separate electric networks, covering the East, the West and Texas. Each includes many thousands of miles of transmission lines, power plants and substations. The flow of power is controlled by local utilities or regional transmission organizations. The growing reliance of utilities on Internet-based communication has increased the vulnerability of control systems to spies and hackers, according to government reports.
The sophistication of the U.S. intrusions—which extend beyond electric to other key infrastructure systems—suggests that China and Russia are mainly responsible, according to intelligence officials and cybersecurity specialists. While terrorist groups could develop the ability to penetrate U.S. infrastructure, they don’t appear to have yet mounted attacks, these officials say.
It is nearly IMPOSSIBLE TO KNOW whether or not an attack is government-sponsored because of the difficulty in tracking true identities in cyberspace. U.S. officials said investigators have followed electronic trails of stolen data to China and Russia.
Russian and Chinese officials have denied any wrongdoing. “These are pure speculations,” said Yevgeniy Khorishko, a spokesman at the Russian Embassy. “Russia has nothing to do with the cyberattacks on the U.S. infrastructure, or on any infrastructure in any other country in the world.”
A spokesman for the Chinese Embassy in Washington, Wang Baodong, said the Chinese government “resolutely oppose[s] any crime, including hacking, that destroys the Internet or computer network” and has laws barring the practice. China was ready to cooperate with other countries to counter such attacks, he said, and added that “some people overseas with Cold War mentality are indulged in fabricating the sheer lies of the so-called cyberspies in China.”
Utilities are RELUCTANT TO SPEAK about the dangers. “Much of what we’ve done, we can’t talk about,” said Ray Dotter, a spokesman at PJM Interconnection LLC, which coordinates the movement of wholesale electricity in 13 states and the District of Columbia. He said the organization has beefed up its security, in conformance with federal standards.
In January 2008, the Federal Energy Regulatory Commission approved new protection measures that required improvements in the security of computer servers and better plans for handling attacks.
Last week, Senate Democrats introduced a proposal that would require all critical infrastructure companies to meet new cybersecurity standards and grant the president emergency powers over control of the grid systems and other infrastructure.
Specialists at the U.S. Cyber Consequences Unit, a nonprofit research institute, said attack programs search for openings in a network, much as a thief tests locks on doors. Once inside, these programs and their human controllers can acquire the same access and powers as a systems administrator.
The White House review of cybersecurity programs is studying ways to shield the electrical grid from such attacks, said James Lewis, who directed a study for the Center for Strategic and International Studies and has met with White House reviewers.
The reliability of the grid is ultimately the responsibility of the North American Electric Reliability Corp., an independent standards-setting organization overseen by the Federal Energy Regulatory Commission.
The NERC set standards last year requiring companies to designate “critical cyber assets.” Companies, for example, must check the backgrounds of employees and install firewalls to separate administrative networks from those that control electricity flow. The group will begin auditing compliance in July.
Rebecca Smith contributed to this article.
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WSJ’s Meatless Spies Story
By Kelly Jackson Higgins
Dark Reading
April 8, 2009
Wednesday’s Wall Street Journal article reporting that the U.S. power grid had been infiltrated by Chinese and Russian “cyberspies” likely caused a few people to choke on their Cheerios. But it left the security community—already jaded with stories of SCADA and power-grid vulnerabilities, and with assumptions that the grid had been hacked a long time ago—hungry for more.
Marcus Sachs, director of SANS Internet Storm Center, says his first thought was, “Where is the beef?” Sachs, a SCADA security expert, told me he didn’t think the revelations by the article’s unnamed senior intelligence official sources were anything new—at least to the security industry. But the report could help raise awareness among businesses running critical infrastructures, such as small power companies, to remember that “cyberspace is a dangerous place.”
“For the rest of us, we already know that’s what’s been going on,” Sachs says.
Still, we security folk want more. We want the down-and-dirty malware particulars. What exactly were those “software tools” described by senior officials in the WSJ article? Spyware? Bots? Malicious code that takes over the admin rights of the power grid systems and triggers blackouts?
It wasn’t clear given how the article’s sources described the hacks, with the intruders “believed to be on a mission to navigate the U.S. electrical system and its controls,” but had not been out to damage it, although those sources said the hackers could try to do so “during a crisis or war.” They reportedly left behind the so-called software tools, which they could ultimately use to destroy elements of the power grid infrastructure, the article said.
Power grid insecurity is a well-documented topic in the security world, most recently with IOActive’s discovery of several vulnerabilities in the next-generation Smart Grid network of intelligent power switches that could let an attacker break in and cut off power. And on Tuesday, Dark Reading blogger and security expert Gadi Evron blog on Tuesday shed light on how poorly SCADA vendors handle vulnerabilities.
Senior officials’ acknowledgment of the intrusions may not have given us enough meat to chew on, but it did raise the topic at breakfast tables around the country, where everyone expects their refrigerator to always be running when they grab the milk and the light to come on when they flip the switch. For the rest of us in security? Hey, at least we now have another topic besides Conficker to chat about at the office coffee maker.
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Air Traffic Control System Repeatedly Hacked
A security audit finds a total of 763 high-risk, 504 medium-risk, and 2,590 low-risk vulnerabilities, such as weak passwords and unprotected folders.
By Thomas Claburn
InformationWeek
May 7, 2009
In the past four years, hackers have hobbled air traffic control systems in Alaska, seized control of Federal Aviation Administration network servers, and pilfered personal information from 48,000 current and former FAA employees, according to a newly released government report.
The report, “Review of Web Applications Security and Intrusion Detection in Air Traffic Control Systems,” was published Wednesday by the Department of Transportation Office of the Inspector General.
It comes on the heels of a report last month in the Wall Street Journal that the Air Force’s air traffic control system had been breached by hackers and amid congressional hearings featuring military and civilian officials testifying about the sorry state of U.S. cybersecurity.
The Transportation Department report states that auditors from KPMG and the Office of the Inspector General tested 70 Web applications, 35 used by the FAA to disseminate information over the Internet and 35 used internally to support air traffic control systems. The security audit found a total of 763 high-risk, 504 medium-risk, and 2,590 low-risk vulnerabilities, such as weak passwords and unprotected folders.
Beyond the issue of poorly configured, buggy Web applications, the report also found that the air traffic control systems are woefully unprotected by intrusion-detection systems. Only 11% of air traffic control facilities have IDS sensors, the report states, and none of those IDS sensors monitors air traffic control operational systems; instead, they monitor mission-support systems, such as e-mail servers.
In 2008, more than 800 cyberincident alerts were issued to the Air Traffic Organization, which oversees air traffic control operations. At the end of that year, 17% of those incidents (150), some designated critical, had not been addressed.
“Without fully deploying IDS monitoring capability at [air traffic control] facilities and timely remediation against cyberincidents, FAA cannot take effective action to stop or prevent these cyberattacks, thus increasing the risk of further attacks on ATC systems,” the report said.
The report states that most of the attacks have disrupted FAA air traffic control support operations rather than the operational network that keeps planes separated from one another. However, it also states that unless swift action is taken, dangerous operational problems are only a matter of time.
It’s also a matter of money, which could be easier to obtain under a cloud of imminent danger: The FAA has been pushing its NEXT GENERATION AIR TRANSPORTATION SYSTEM, a project to update the nation’s air transit infrastructure that’s expected to cost at least $20 billion.
With any luck, that amount of funding will also buy a few scarecrows. There were almost 10 times as many wildlife strikes against airplanes in 2007 (7,666) as air traffic control cyberincidents in 2008. Such collisions—recall the bird strike that sent US Airways Flight 1549 into the Hudson River in January—cost an estimated $628 million in monetary losses annually, to say nothing of the potential loss of life. Hackers just don’t have that kind of impact, unless they wander onto a runway.
Bad Moon Rising
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Part 6 - Part 7 - Part 8 - Part 9 - Part 10
Part 11 - Part 12 - Part 13 - Part 14 - Part 15
Part 16 - Part 17 - Part 18 - Part 19 - Part 20
Part 21 - Part 22 - Part 23 - Part 24 - Part 25
Part 26 - Part 27 - Part 28 - Part 29 - Part 30
Part 31 - Part 32 - Part 33 - Part 34 - Part 35
Part 36 - Part 37 - Part 38 - Part 39
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